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It’s been just over a year since the FCC repealed net neutrality. The FCC’s case is being appealed and oral arguments are underway in the appeal as I write this blog. One would have to assume that until that appeal is finished that the big ISPs will be on their best behavior. Even so, the press has covered a number of ISP actions during the last year that would have violated net neutrality if the old rules were still in place.

It’s not surprising that the cellular carriers were the first ones to violate the old net neutrality rules. This is the most competitive part of the industry and the cellular carriers are not going to miss any opportunity to gain a marketing edge.

AT&T is openly advertising that cellular customers can stream the company’s DirecTV Now product without it counting against monthly data caps. Meanwhile, all of the competing video services like Sling TV, Paystation Vue, YouTube TV, Netflix or Amazon Prime count against AT&T data caps – and video can quickly kill a monthly data plan download allotment. AT&T’s behavior is almost a pure textbook example of why net neutrality rules were put into place – to stop ISPs from putting competitor’s products at an automatic disadvantage. AT&T is the biggest cellular provider in the country and this creates a huge advantage for DirecTV Now. All of the major cellular carriers are doing something similar in allowing some video to not count against the monthly data cap, but AT&T is the only one pushing their own video product.

In November a large study of 100,000 cellphone users by Northeastern University and the University of Massachusetts showed that Sprint was throttling Skype. This is not something that the carrier announced, but it’s a clear case of pushing web traffic to the ‘Internet slow lane’. We can only speculate why Sprint would do this, but regardless of their motivation this is clearly a violation of net neutrality.

This same study showed numerous incidents where all of the major cellular carriers throttled video services at times. YouTube was the number one target of throttling, followed by Netflix, Amazon Prime, and the NBC Sports app. This throttling wasn’t as widespread as Sprint’s throttling of Skype, but the carriers must have algorithms in their network that throttles specific video traffic when cell sites get busy. In contrast to the big carriers, the smaller independent cellular carrier C.Spire had almost no instances of differentiation among video streams.

Practices that might violate net neutrality were not limited to cellular carriers. For example, Verizon FiOS recently began giving free Netflix for a year to new broadband customers. AT&T also started giving out free HBO to new customers last year. This practice is more subtle than the cellular carrier practice of blocking or throttling content. One of the purposes of net neutrality was for ISPs to not discriminate against web traffic. By giving away free video services the landline broadband companies are promoting specific web services over competitors.

This doesn’t sound harmful, but the discussions in the net neutrality order warned about a future where the biggest ISPs would partner with a handful of big web services like Facebook or Netflix to the detriment of all smaller and start-up web services. A new video service will have a much harder time gaining customers if the biggest ISPs are giving away their competitors for free.

There are probably more bad practices going on that we don’t know about. We wouldn’t have known about the cellular throttling of services without the big study. A lot of discrimination can be done through the network routing practices of the ISPs, which are hard to prove. For example, I’ve been seeing a growing number of complaints from consumers recently who are having trouble with streaming video services. If you recall, net neutrality first gained traction when it became known that the big ISPs like Comcast were blatantly interfering with Netflix streaming. There is nothing today to stop the big ISPs from implementing network practices that degrade certain kinds of traffic. There is also nothing stopping them from demanding payments from web services like Netflix so that their product is delivered cleanly.

Interestingly, most of the big ISPs made a public pledge to not violate the spirit of net neutrality even if the rules were abolished. That seems to be a hollow promise that was to soothe the public that worried about the end if net neutrality. The FCC implemented net neutrality to protect the open Internet. The biggest ISPs have virtual monopolies in most markets and public opinion is rarely going to change an ISP behavior if the ISP decides that the monetary gain is worth the public unhappiness. Broadband customers don’t have a lot of options to change providers and Cable broadband is becoming a near-monopoly in urban areas. There is no way for a consumer to avoid the bad practices of the cellular companies if they all engage in the same bad practices.

There is at least some chance that the courts will overturn the FCC repeal of net neutrality, but that seems unlikely to me. If the ISPs win in court and start blocking traffic and discriminating against web traffic it does seem likely that some future FCC or Congress will reinstitute net neutrality and starts the fight all over again. Regardless of the court’s decision, I think we are a long way from hearing the last about net neutrality.

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I was recently joking with a colleague about some of the really dumb things that some of the big ISPs do – those things that get negative press or that make customers permanently dislike them. But after thinking about it a bit, it struck me that bad behavior by the big companies is almost inevitable – it’s a challenge for a big company to not behave badly. I can think of a number of reasons for the poor decisions that big ISPs seem to repeatedly make.

Good Intentions but Bad Policies. Some of the ugliest stories in the press from our industry have come from Comcast customer service. Customers have recorded customer service representatives saying some of the most awful things. Comcast executives have often been quoted as saying that they want to do a better job of customer service and the company has thrown big bucks at the issue over the last decade to try to improve.

But Comcast has corporate policies that undo all of their good intentions. Some of the most memorable press stories came from customer service reps who are compensated for stopping customers from disconnecting service or for upselling additional services to customers. Win-back programs and upselling are good for the Comcast bottom line, but they tempt poorly paid customer service reps into saying anything to stop a customer from disconnecting or entice a customer service rep to sneak unwanted products onto a customer’s bill. The bottom line is that policies that promote good behavior go out the window when employees are compensated for bad behavior.

Decentralized Management. I remember reading last year about the big push at Verizon to bring all of their fiber assets under one regime. The company built fiber over the years under a lot of different business units and there has been no centralized fiber inventory. This has to have cost Verizon a fortune over the years with lost revenue opportunities on fiber that already exists. An outsider like me looks at this and wonders why something this common sense wasn’t done fifteen years ago. Unfortunately, the poor communications inside the company is a natural consequence of operating different business units, each in silos. The FiOS folks never knew what the enterprise or the cellular folks were doing, and so the company frittered away the huge synergies that could have been gained by making all fiber available to all business units. We’ve seen attempts at the big ISPs to make the kind of consolidation Verizon is doing, but if they aren’t careful, in time they’ll slip back to the old bad practices.

No Emphasis on Being Good Corporate Citizens. I worked at Southwestern Bell pre-divestiture. There were some negative sides from being a giant monopoly, but the company also put a lot of effort into instilling the message internally that the company had a nationwide mandate to do a good job. The company constantly extolled its accomplishments to employees and effectively indoctrinated them into being good citizens. I happened to sit close to the person who took ‘executive’ complaints – complaints from customers that had escalated to upper management. The company made a legitimate effort to deal with every problem that made it that high in the company. Employees were rewarded for loyalty and good behavior with lifetime jobs – phone company people were joked to have bell-shaped heads.

Big ISPs no longer promise jobs for life and working at a big ISP today is just a job. I know a mountain of people who currently work for the big ISPs and none of them have that same esprit de corps that was normal at Ma Bell.

Quarterly Profit-Driven. A lot of the problems I see from the big ISPs come from the modern emphasis on quarterly earnings. This emphasis permeates down into the ranks of management at an ISP. For example, a department head might decide to not make a major repair or upgrade if it causes a blip in the department’s budget. The constant drive for quarterly earnings improvements drives ISPs to lay-off needed technicians to meet an earnings goal. It drives companies to raise rates even when they haven’t increased costs. It makes companies chase new shiny ideas like 5G even if the technology is half-baked and premature. Unfortunately, Wall Street matters more than both employees and customers – and it shows.

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It’s been conventional wisdom in the industry that cable companies stick to their historic cable system boundaries and don’t really expand much. In much of the country, this is well understood and everybody can point to customers that have lived for decades just a house or two past the end of the coaxial cable network.

However, not all cable companies have stuck with this historic entrenchment. A good case in point is Comcast, which passed 53.8 million homes in 2013 but had grown that to 57.5 million passings by the end of 2017. A few of the new 3.7 million new passings came from the purchase of small cable systems, but most came through the growth of the Comcast network.

Many of the new passings came about as the result of the continued growth of urban America. As a country we’re still seeing rural residents migrate to urban centers – which are growing while rural America is mostly stagnant or even shrinking. Recent years have seen some of the largest ever growth in new housing construction – 1.5 million new living units over the last year – and Comcast gets its share of these opportunities in its franchise areas.

But the company is also expanding outward from its core cable franchise areas where that makes sense. This has mostly been done quietly with a street added here, a small neighborhood added there, and new subdivisions always pursued; Comcast is obviously looking around for growth when it can be done affordably.

The most surprising source of Comcast growth comes from expansion into areas served by other cable companies. Historically there was a gentleman’s agreement in the cable industry to not poach on neighboring franchises, but Comcast is no longer sticking to that industry norm. Over the last few years, Comcast has gotten franchises to operate in communities already served by other cable companies.

In 2017 Comcast got a franchise in Rochester, New Hampshire in an area already served by Atlantic Broadband. In 2018 Comcast got franchises in Waterford and New London, Connecticut in areas also served by Atlantic Broadband. Last year Comcast also got franchises to operate in five communities in Pennsylvania operated by Blue Ridge Cable – Warwick Township, Warwick Borough, Ephrata Township, Ephrata Borough and Lititz.

Incumbent cable companies have rarely competed with each other. One of the few exceptions was Midcontinent that overbuilt CableONE in Fargo, North Dakota in 2013. There are also two overbuilders that have built competing cable networks – RCN and WideOpenWest – but these companies started as overbuilders and were not incumbent providers.

For now, it looks like Comcast might be going after these markets to get lucrative business customers. For instance, New London, Connecticut is the home to two colleges and the Coast Guard Academy. There are some large businesses and medical centers in some of the towns in Pennsylvania. Even if Comcast only goes after large businesses that can be a big blow to the smaller cable companies already serving these markets. When I create business plans I always refer to the revenues from the few biggest customers in a community as ‘home-run’ revenues because just a few customers can make or break a business plan. Comcast will do great harm to its neighbors if they pick off their home-run customers.

Comcast has gotten so large that they probably don’t care any longer about the historic gentleman’s agreements that put a fence around a franchise area. Comcast is under constant pressure to grow revenues and profits and it’s almost inevitable that they’ll chase anything they view as low-hanging fruit. This is one of the characteristics of companies that become virtual monopolies – they almost can’t stop themselves from engaging in business practices that make money. A company as big as Comcast doesn’t make all of the decisions at the corporate level – rather, they give revenue and earnings targets to differrent parts of the company and those business units often decide to chase revenues in ways the parent might not have dictated. In many big corporations it is the bonus structure that often drives local decisions rather than corporate policy.

It will be interesting to see how this might change the nature of cable company cooperation. The cable companies have been incredibly effective in having a unified message across the country in terms of lobbying at the federal, state and local levels – what was good for one was good for all. But that’s no longer the case if Comcast starts competing with smaller neighboring cable companies. We saw this same phenomenon a few decades ago in the telephone industry and the small telcos all started lobbying separately from the big companies. The small and large telcos still sometimes agree on issues, but often they do not. It’s almost inevitable that the unified voice of the cable industry can’t survive competition between cable companies – but I also suspect Comcast doesn’t care about that.

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The big cable companies are clearly worried about 5G. They look at the recently introduced Verizon 5G product and they understand that they are going to see something similar over time in all of their metropolitan markets. Verizon is selling 5G broadband – currently at 300 Mbps second, but promised to get faster in the future – for $70 standalone or for $50 for those with Verizon cellular.

This is the nightmare scenario for them because they have finally grown to the point where they are approaching a near monopoly in most markets. They have successfully competed with DSL and quarter after quarter have been taking DSL customers from the telcos. In possibly the last death knell for DSL, both Comcast and Charter recently increased speeds of their base products to at least 200 Mbps. Those speeds makes it hard for anybody to justify buying DSL at 50 Mbps or slower.

The big cable companies have started to raise broadband rates to take advantage of their near-monopoly situation. Charter just recently raised bundled broadband prices by $5 per month – the biggest broadband price increase I can remember in a decade or more. Last year a major Wall Street analyst advised Comcast that their basic broadband price ought to be $90.

But now comes fixed 5G. It’s possible that Verizon has found a better bundle than the cable companies because of the number of households that already have cellphones. It’s got to be tempting to homes to buy fast broadband for only $50 per month in a bundle.

This fixed 5G competition won’t come over night. Verizon is launching 5G in urban markets where they already have fiber. Nobody knows how fast they will really implement the product, due mostly to distrust of a string of other Verizon hype about 5G. But over time the fixed 5G will hit markets. Assuming Verizon is successful, then others will follow them into the market. I’m already seeing some places where companies American Tower are building 5G ‘hotels’ at poles, which are vaults large enough to accommodate several 5G providers at the same location.

We got a clue recently about how the cable companies might fight back against 5G. A number of big cable companies like Comcast, Charter, Cox and Midco announced that they will be implementing the new 10 Gbps technology upgrade from CableLabs. These cable companies just recently introduced gigabit service using DOCSIS 3.1. It looks like the cable companies will fight against 5G with speed. It sounds like they will advertise speeds far faster than the 5G speeds and try to win the speed war.

But there is a problem with that strategy. Cable systems with the DOCSIS 3.1 upgrade can clearly offer gigabit speeds, but in reality cable company networks aren’t ready or able to deliver that much speed to everybody. Fiber networks can easily deliver a gigabit to every customer, and with an electronics upgrade can offer 10 Gbps to everybody, as is happening in parts of South Korea. But cable networks have an inherent weakness that makes gigabit speed problematical.

Cable networks are still shared networks and all of the customers in a node share the bandwidth. Most cable nodes are still large with 150 – 300 customers in each neighborhood node, and some with many more. If even a few customers start really use gigabit speeds then the speed for everybody else in the node will deteriorate. That’s the issue that caused cable networks to bog done in the evenings a decade ago. Cable companies fixed the problem then by ‘splitting’ the nodes, meaning that they build more fiber to reduce the number of homes in each node. If the cable companies want to really start pushing gigabit broadband, and even faster speeds, then they are faced with that same dilemma again and they will need another round, or even two rounds of node splits.

For now I have serious doubts about whether Comcast and Charter are even serious about their gigabit products. Comcast gigabit today costs $140 plus $10 for the modem. The prices are lower in markets where the company is competing against fiber, and customers can also negotiate contract deals to get the gigabit price closer to $100. Charter has similar pricing – in Oahu where there is competition they offer a gigabit for $105, and their price elsewhere seem to be around $125.

Both of these companies are setting gigabit prices far above Google’s Fiber’s $70 gigabit. The current cable company gigabit is not a serious competitor to Verizon’s $50 – $70 price for 300 Mbps. I have a hard time thinking the cable companies can compete on speed alone – it’s got to be a combination of speed and price. The cable companies can compete well against 5G if they are willing to price a gigabit at the $70 Verizon 5G price and then use their current $100+ price for 10 Gbps. That pricing strategy will cost them a lot of money in node upgrades, but they would be smart to consider it. The biggest cable companies have already admitted that their ultimate network needs to be fiber – but they’ve been hoping to milk the existing coaxial networks for another decade or two. Any work they do today to reduce node size would be one more step towards an eventual all-fiber network – and could help to stave off 5G.

It’s going to be an interesting battle to watch, because if we’ve learned anything in this industry it’s that it’s hard to win customers back after you lose them. The cable companies currently have most of the urban broadband customers and they need to act now to fight 5G – not wait until they have lost 30% of the market.

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Lori Swanson, the Attorney General of Minnesota sued Comcast on December 21 seeking refunds to all customers who were harmed by the company’s alleged violation of the state’s Prevention of Consumer Fraud Act and Uniform Deceptive Trade Practices Act. The complaint details the sort of practices that we’ve come to expect from most of the big cable companies – and hopefully this serves as a warning to smaller ISPs that might be following similar practices. It’s an interesting read.

The most significant dollar complaint is that Comcast has defrauded customers about the true nature of two fees – the ‘Regional Sports Network Fee’ and the ‘Broadcast TV’ fee. These two fees now total $18.25 per month. These fees are both a part of every cable package and are not optional to customers, but Comcast does not mention them when advertising the cable products. Further, Comcast customer service has repeatedly told the public that these fees are mandated by the government and are some a tax that is not set by Comcast.

Comcast only started charging separately for these two fees in 2014, but the size of these line items has skyrocketed on bills. In recent years the company has put a lot of the annual rate increases into these fees, allowing the company to continue to advertise low prices. The Regional Sports fee passes along the cost of Fox Sports North, and perhaps other regional sports. The Broadcast TV fee includes the amounts that Comcast pays local affiliate stations for ABC, CBS, FOX and NBC.

Interestingly, Comcast was previously sued over this same issue and settled the case without a verdict. As part of that suit the company promised to fix the problems, but they continued into 2017. In a pleading that is sure to displease company employees, Comcast threw its customer service reps under the bus and blame the issue on them. Comcast argues that breaking out these fees makes it easier for customers to know what they are paying for – but there are numerous examples cited in the complaint where new customers were surprised at the size of the first bill they receive from the company.

The complaint also says that the company often misrepresents the fees for equipment rental such as cable settop boxes, digital adapters and broadband modems. The complaint says that for some packages these fees add 30% to the cost of the product and are not fully disclosed to customers.

The complaint also says that Comcast routinely adds unwanted fees to customer bills. Customers that are visited by Comcast field technicians, who visit a business office or who buy from a Comcast door-to-door salesperson are often surprised to see additional products added to their bill. The complaint blames this on the practice of paying commissions to employees for sales.

The complaint notes that Comcast is well aware of these issues. The company settled an FCC complaint about the same issues in 2016 and late last year made refunds to more than 20,000 customers in Massachusetts over these same issues.

It’s not hard to verify some of the issue. If you go to the Comcast website you’ll find that it’s almost impossible to find the real cost of their cable and broadband products. The company constantly advertises low-priced specials that don’t mention the extra programming fees or the equipment fees.

This is a cautionary tale for smaller ISPs that compete with Comcast or other large cable companies. It’s always tempting to advertise cheap special prices in response to big cable company advertising. I know many smaller cable providers that have also separated out the sports and broadcast fees and who are not always fully forthcoming about equipment charges and other fees. It’s hard to watch customers leave who are lured by falsely advertised low prices – but most small ISPs have elected to deal with customers fairly as a way to differentiate themselves from the big companies.

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It’s that time of year when I look forward at what the next year might bring to the industry. I see the following as the biggest telecom trends for 2019:

5G Will Not Save the World (or the Industry). This will be the year when we will finally stop seeing headlines about how 5G will transform society. There will be almost no actual introduction of 5G in networks, but we’ll still see numerous press releases by the big ISPs crowing about fictional 5G achievements.

CAF II Buildout Nearly Complete, but Few Notice. The CAF II upgrades will not have the impact hoped for by the FCC. Many areas that should have gotten speed increases to at least 10/1 Mbps will get something less, but nobody will officially monitor or note it. Households that buy the upgrades to 10/1 will still feel massively underserved since those speeds are already seriously obsolete.

People Will Wonder Why They Bought 5G Cellphones and 802.11ax Routers. The wireless carriers will begin charging premium prices for 5G-capable cellular phone yet there will be no 5G cell sites deployed. Households will upgrade to 802.11ax WiFi routers without realizing that there are no compatible devices in the home. Both sets of customers will feel cheated since there will be zero improvement in performance. Yet we’ll still see a few articles raving about the performance of each technology.

FCC Will Continue to Work Themselves out of the Regulatory Business. The current FCC will continue on the path to deregulate the large carriers to the fullest extent possible. They will continue to slant every decision in the direction of the big ISPs while claiming that every decision helps rural broadband.

Rural America Will Realize that Nobody is Coming to Help. I predict that hundreds of rural communities will finally realize that nobody is bringing them broadband. I expect many more communities to begin offering money for public/private partnerships as they try desperately to not fall on the wrong side of the broadband divide.

Broadband Prices Start to Climb. 2019 will be the first year that the world will notice the big ISP strategy to significantly increase broadband prices. We saw the first indication in November when Charter increased bundled broadband prices by $5 per month – the biggest broadband price increase in my memory. All the big ISPs are hoping to have broadband prices to $90 within 5 – 7 years.

Corporate Lobbyists Will Drive Policy. In 2018 there were numerous FCC decisions that came straight from the pens of telecom lobbyists. In 2019 those lobbyists will drive state and federal telecom legislation and FCC decisions.

Comcast and Charter Continue to Eat into Cellular Market. These two cable companies will quietly, yet significantly begin eating into the cellular markets in urban areas. I still don’t expect a major reaction by the cellar companies, but by 2020 we should start seeing cellular prices take another tumble.

Household Bandwidth Usage Will Continue to Grow. There will be no slowdown in the growth of household broadband as homes add many more bandwidth-capable devices to their homes. Another few million customers will cut the cable TV cord and ratchet up bandwidth usage. Online programming will routinely first offer 4K video and we’ll see the first commercial 8K video online.

We’ll See First Significant Launches of LEO Satellites. There will be little public notice since the early market entries will not be selling rural broadband but will be supporting corporate WANs, cellular transport and the development of outer space networks between satellites.

25 New Online Programmers Emerge. There will be a flood of new online programming options as numerous companies jump into the market. We won’t see many, and possibly no failures this year, but within a few years the market reality will drive out companies that can’t gain enough market share.

Transport Price Pressure Tightens. Anybody selling transport to cellular companies will see big pressure to lower prices. Those who ignore the pressure will find out that the carriers are willing to build fiber to bypass high costs.

Big Companies Will Get Most New Spectrum. The biggest ISPs and cellular carriers will still gobble up the majority of new spectrum, meaning improved spectrum utilization for urban markets while rural America will see nearly zero benefits.

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I was just in a meeting the other day with a bunch of ISPs were talking about household downloads. Several said that they were now seeing monthly data usage exceed a terabyte, and those with Comcast were lamenting that this is causing them a lot of money.

I wrote a lot about Comcast data caps a few years ago when the company experimented with really low data caps of 300 gigabytes per month. At that time a lot of households complained that they were exceeding those caps. Comcast was arguing at the time to end net neutrality and I think this persuaded them to back off of the low caps, which they set to 1 terabyte.

Here we are only a few years later and a lot of households are bumping up against and exceeding that data cap. Comcast absolutely knew this was coming and they just pushed the ability to monetize data caps a few years into the future. As an ISP the company knows better than most that the household demand for total downloaded data has been doubling every three years or so. That kind of growth will push a huge number of households over a terabyte within a decade – with many already hitting it now.

Comcast tries to justify data caps by arguing fairness – the same argument they made a few years ago. They say that those that use the Internet the most ought to pay the most. Even if you can buy that argument the penalty for exceeding the data caps are excessive. Comcast doesn’t charge a household for the first two months they exceed a terabyte. After that they have two plans. They will automatically bill $10 for every extra 50 Gigabytes over the data cap – with total excess charges capped at $200 per month. Customers who expect to exceed the data cap can also agree to pay $50 extra every month to get unlimited usage.

Comcast goes on to explain away the terabyte cap by describing what it takes to exceed the cap, as follows:

Stream between 600 and 700 hours of HD video

Play online games for more than 12,000 hours

Stream more than 15,000 hours of music

Upload or download more than 60,000 hi-res photos

This explanation is simplistic for a number of reasons. First, full Netflix HD broadcast at 1080p streams at over 7 Mbps and uses roughly 2.5 GB per hour, meaning a terabyte will cover about 400 hours of full HD video. If you have a good broadband connection the chances are that you are watching a lot of 4K video today – it’s something that Netflix and Amazon Prime offer automatically. It only takes only about 180 hours of 4K video in a month to hit the terabyte data cap – a number that is not hard to imagine in a cord-cutting home. The chart also misses obvious large uses like downloading games – with download sizes over 40 GB for one game becoming common.

The Comcast charts also fail to recognize the hidden ways that we all burn through bandwidth today. It’s not untypical for the average household to have a 30% to 40% overhead on Internet usage. That comes from the network having to transmit data multiple times to complete a download request. This overhead is caused for a number of reasons. First are inefficiencies inherent in the open Internet. There are always packets lost on transit that much be sent multiple times. There are also delays caused by the ISP network, particularly networks that are undersized in neighborhoods and that hit capacity during the busy hours. The biggest cause of delays for most of us is in-home WiFi networks that creates a lot of collisions from competing signals.

There are also a lot of background use of the Internet today that surprises people. We now routinely use web storage to back up files. All of the software on our machines upgrade automatically. Many now use applications like video cameras and home alarms that connect in the cloud and that ping back and forth all day. All sorts of other things go on in the background that are a mystery – I’ve noticed my house has significant broadband usage even when we aren’t home. I’ve estimated that this background communication probably eats about 150 gigabytes per month at my house.

When I consider those issues the Comcast terabyte data caps are stingy. A household with a lot of network noise and with a lot of background traffic might hit the data caps using only half of a terabyte of downloaded video or other services like those listed by Comcast. A home today might hit the cap with 200 hours of full HD streaming or 90 hours of 4K streaming.

The other amazing aspect of the terabyte data caps is the charge for using more than a terabyte in a month. As mentioned above, Comcast charges $10 for every extra 50 GB. I’ve done the math for dozens of ISPs and most of my clients spend between $2 and $4 per month on average for the bandwidth per broadband customer. That number includes not only residential users, but for most ISPs also includes some huge commercial broadband customers. The average price varies the most according to how far an ISP is away from the Internet, and that component of the cost is fixed and doesn’t increase due to higher data volumes by the ISP. After backing out this fixed transport cost, my math says that an extra 50 GB of broadband costs an ISP only a few pennies. For a large ISP like Comcast that cost is significantly lower since they peer with the big broadband companies like Netflix, Google and Amazon – and traffic exchanged in those arrangements have nearly zero incremental cost of extra bandwidth.

Finally, the Comcast website claims that less than 1% of their users exceed the terabyte data caps. Only they know the numbers, but I find that hard to believe. When you look at the amount of usage needed to hit that cap there has to be a lot of cord-cutter households already exceeding a terabyte.

The bottom line is that Comcast is extorting homes when they force them to spend $50 per month for unlimited data usage. That extra bandwidth costs them almost nothing. Unfortunately, there isn’t a damned thing any of us can do about this any since Comcast and the other big ISPs got their wish and broadband is no longer regulated by the FCC.

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As a nation we are approaching an 85% overall penetration of residential broadband. The following statistics come from the latest report from the Leichtman Group and compares broadband customers at the end of the recent 3Q of 2018 to the end of 2017.

3Q 2018

4Q 2017

Change

Comcast

26,872,000

25,869,000

1,003,000

3.9%

Charter

24,930,000

23,903,000

1,027,000

4.3%

AT&T

15,746,000

15,719,000

27,000

0.2%

Verizon

6,958,000

6,959,000

(1,000)

0.0%

CenturyLink

5,435,000

5,662,000

(227,000)

-4.0%

Cox

5,040,000

4,880,000

160,000

3.3%

Altice

4,096,300

4,046,200

50,100

1.2%

Frontier

3,802,000

3,938,000

(136,000)

-3.5%

Mediacom

1,260,000

1,209,000

51,000

4.2%

Windstream

1,015,000

1,006,600

8,400

0.8%

Consolidated

781,912

783,682

(1,770)

-0.2%

WOW!

755,100

730,000

25,100

3.4%

Cable ONE

660,799

524,935

135,864

25.9%

Cincinnati Bell

310,700

308,700

2,000

0.6%

97,662,811

95,056,435

2,123,694

2.2%

The large ISPs in the table control over 95% of the broadband market in the country. Not included in these numbers are the broadband customers served by the smaller ISPs – the telcos, WISPs, fiber overbuilders and municipalities. Cable companies continue to dominate the broadband market and now have 63.6 million customers compared to 34.0 million customers for the big telcos.

The 2.2% overall growth during the year is impressive since many have assumed that we are nearing the top of the market for broadband penetration. It’s worth noting that the US has had a housing construction boom and has added 1.6 million new housing units so far in 2018. If you assume those new homes share the same overall 85% market penetration as the rest of the country, the new homes would account for 1.36 million of the broadband gain. That means the rest of the market saw nearly a 1% overall increase in broadband penetration – a definite slowdown over prior years.

Much of the growth at the big cable companies continues to come at the expense of telco DSL. Overall, the big telcos lost a net of 328,370 customers for the year. This is mostly due to CenturyLink and Frontier, who are clearly bleeding DSL customers. The customer losses for these two companies is a bit surprising since by now each company should have activated big numbers of faster rural DSL customers, funded by the CAF II program. Companies are not required to report their performance for CAF II separately, and I have to wonder if many rural households are actually buying the improved rural broadband.

One thing that is clear about these numbers if that every company on the list ought to be considered now as an ISP, rather than as a telco or cable company. For this same 9-month period these same companies lost nearly 2.7 million cable customers while adding 2.1 million broadband customers. It’s clear that broadband is now the biggest and most important product for each of these companies.

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The cable companies are increasingly likely to be take a page from the cellular carriers by offering zero-rating for video. That’s the practice of providing video content that doesn’t count against monthly data caps.

Zero-rating has been around for a while. T-Mobile first started using zero-rating in 2014 when it provided its ‘Music Freedom’ plan that provided free streaming music that didn’t count against cellular data caps. This highlights how fast broadband needs have grown in a short time – but when data caps were at 1 GB per month, music streaming mattered.

T-Mobile then expanded the zero-rating in November 2015 to include access to several popular video services like Netflix and Hulu. AT&T quickly followed with the first ‘for-pay’ zero-rating product, called FreeBee Data that let customers (or content providers) pay to zero-rate video traffic. The AT&T plan was prominent in the net neutrality discussions since it’s a textbook example of Internet fast lanes using sponsored data where some video traffic was given preferential treatment over other data.

A few of the largest cable companies have also introduced a form of zero-rating. Comcast started offering what it called Stream TV in late 2015. This service allowed customers to view video content that doesn’t count against the monthly data cap. This was a pretty big deal at the time because Comcast was in the process at the time of implementing a 300 GB monthly data cap and video can easily push households over that small cap limit. There was huge consumer pushback against the paltry data caps and Comcast quickly reset the data cap to 1 terabyte. But the Stream TV plan is still in effect today.

What’s interesting about the Comcast plan is that the company had agreed to not use zero-rating as part of the terms of its merger with NBC Universal in 2011. The company claims that the Stream TV plan is not zero-rating since it uses cable TV bandwidth instead of data bandwidth – but anybody who understands a cable hybrid-fiber coaxial network knows that this argument is slight-of-hand, since all data uses some portion of the Comcast data connection to customers. The prior FCC started to look into the issue, but it was dropped by the current FCC as they decided to eliminate net neutrality.

The big cable companies have to be concerned about the pending competition with last-mile 5G. Verizon will begin a slow roll-out of its new 5G technology in October in four markets, and T-Mobile has announced plans to begin offering it next year. Verizon has already announced that they will not have any data caps and T-Mobile is also unlikely to have them.

The pressure will be on the cable companies to not charge for exceeding data caps in competitive markets. Cable companies could do this by eliminating data caps or else by pushing more video through zero-rating plans. In the case of Comcast, they won’t want to eliminate the data caps for markets that are not competitive. They view data caps as a potential source of revenue. The company OpenVault says that 2.5% of home currently exceed 1 TB in monthly data usage, up from 1.5% in 2017 – and within a few years this could be a lucrative source of extra revenue.

Comcast and the other big cable companies are under tremendous pressure to maintain earnings and they are not likely to give up on data caps as a revenue source. They are also likely to pursue sponsored video plans where the video services pay them to provide video outside of data caps.

Zero-rating is the one net neutrality practice that many customers like. Even should net neutrality be imposed again – through something like the California legislation or by a future FCC – it will be interesting to see how firmly regulators are willing to clamp down on a practice that the public likes.

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We finally got a look at the detail of Verizon’s 5G residential wireless product. They’ve announced that it will be available to some customers in Houston, Indianapolis, Los Angeles and Sacramento starting on October 1.

Verizon promises average download data speeds of around 300 Mbps. Verizon has been touting a gigabit wireless product for the last year, but the realities of wireless in the wild seems to have made that unrealistic. However, 300 Mbps is a competitive broadband product and in many markets Verizon will become the fastest alternative competitor to the cable companies. As we’ve seen everywhere across the country, a decent competitor to the big cable companies is almost assured of a 20% or higher market penetration just for showing up.

The product will be $50 per month for customers who use Verizon wireless and $70 for those that don’t. These prices will supposedly include all taxes, fees and equipment – although it’s possible that there are add-ons like using a Verizon WiFi router. That pricing is going to be attractive to anybody that already has Verizon cellular – and I’m sure the company is hoping to use this to attract more cellular customers. This is the kind of bundle that can make cellular stickier and is exactly what the Comcast and Charter have in mind as they are also offering cellular. Verizon is offering marketing inducements for the roll-out and are offering 3 months free of YouTube TV or else a free Apple TV 4K or a Google Chromecast Ultra.

Theoretically this should set off a bit of a price war in cities where Comcast and Charter are the incumbent cable providers. It wouldn’t be hard for those companies to meet or beat the Verizon offer since they are already selling cellular at a discount. We’re going to get a fresh look at oligopoly competition – will the cable companies really battle it out? The cable companies have to be worried about losing significant market share in major urban markets.

We’re also going to have to wait a while to see the extent of the Verizon coverage areas. I’ve been speculating about this for a while and I suspect that Verizon is going to continue with their history of being conservative and disciplined. They will deploy 5G where there is fiber that can affordably support it – but they are unlikely to undertake any expensive fiber builds just for this product. Their recently announced ‘One Fiber’ policy says just that – the company wants to capitalize on the huge amount of network that they have already constructed for other purposes. This means it’s likely in any given market that coverage will depend upon a customer’s closeness to Verizon fiber.

There is one twist to this deployment that means Verizon might not be in a hurry to deploy this too quickly. The company has been working with Ericsson, Qualcomm, Intel and Samsung to create proprietary equipment based upon the 5GTF standard. But the rest of the industry has adopted the 3GPP standard for 5G and Verizon admits it will have to replace any equipment installed with their current standard.

Verizon also said over the last year that they wanted this to be self-installed by customers. At least for now the installations are going to require a truck roll, which will add to the cost and the rate of deployment of the new technology.

Interestingly, these first markets are outside of Verizon’s telco footprint. This means that Verizon will not only be taking on cable companies, but that they might be putting the final nail in the coffin of DSL offered by AT&T and other telcos in the new markets. Verizon is unlikely to roll this out to compete with their own FiOS product unless deployments are incredibly inexpensive. But this might finally bring a Verizon broadband product to neighborhoods in the northeast that never got FiOS.

It’s going to be a while under we understand the costs of this deployment. Verizon has been mum about the specific network elements and reliance on fiber needed to support the product. And they have been even quieter about the all-in cost of deployment.

Cities all over the country are going to get excited about this deployment in the hope of getting a second competitor to their cable company which are often a near-monopoly. It appears that the product is going to work best where there is already a fiber-rich environment. Most urban areas, while having little last mile-fiber, are crisscrossed with fiber used to get to large businesses, governments, schools, etc.

The same is not necessarily the same in suburbs and definitely not true of smaller communities and rural America. The technology depends upon local last-mile fiber backhaul. Verizon says that they believe their potential market will be to eventually pass 30 million households, or a little less than 25% of the US market. I’d have to think that the map for others, except perhaps for AT&T largely coincide with the Verizon map. It seems that Verizon wants to be the first to market to potentially dissuade other entrants. We’ll have to wait and see if a market can reasonably support more than one last-mile 5G provider – because companies like T-Mobile also have plans for wide deployment.